Taxes Subsumed under GST

03/12/2023 1 By indiafreenotes

Goods and Services Tax (GST) in India was introduced to replace a multitude of indirect taxes levied by both the central and state governments. The implementation of GST aimed to simplify the tax structure, reduce the cascading effect of taxes, and create a unified market.

Before the introduction of GST, the indirect tax system in India was characterized by a complex web of taxes at both the central and state levels. These taxes often led to double taxation, where a tax was levied on top of another tax, resulting in a cascading effect. The subsumation of various taxes under GST sought to address these issues and create a more efficient and transparent taxation system.

  1. Central Taxes:
  • Central Excise Duty:

Central Excise Duty was a tax levied on the manufacture or production of goods in India. It applied to a wide range of goods and was a significant source of revenue for the central government.

  • Service Tax:

Service Tax was applicable to the provision of specified services. It covered a broad spectrum of services, and the tax was collected from the service provider. GST subsumed Service Tax, unifying the taxation of both goods and services.

  • Additional Customs Duty (CVD and SAD):

Additional Customs Duty, commonly known as Countervailing Duty (CVD) and Special Additional Duty (SAD), was imposed on the import of goods. These were indirect taxes that were subsumed under GST to streamline the taxation of imported goods.

  • Central Sales Tax (CST):

Central Sales Tax was a tax on the sale of goods in the course of interstate trade or commerce. With the introduction of GST, the concept of CST was eliminated, and IGST (Integrated GST) replaced it for interstate transactions.

  • Central Surcharges and Cesses:

Various surcharges and cesses imposed by the central government were subsumed under GST. This includes Clean Energy Cess, Swachh Bharat Cess, and others.

  1. State Taxes:

  • Value Added Tax (VAT):

VAT was a state-level tax levied on the sale of goods. Each state had its own VAT rates and rules, leading to variations in the tax structure. GST replaced VAT, creating a uniform tax rate for goods across states.

  • Entry Tax:

Entry Tax was levied by states on the entry of goods into a local area for consumption, use, or sale. It was a barrier to the free movement of goods, and its subsumation under GST contributed to the creation of a common market.

  • Purchase Tax:

Some states imposed Purchase Tax on goods purchased within the state. GST eliminated Purchase Tax, ensuring that the tax is levied only at the final point of consumption.

  • Luxury Tax:

Luxury Tax was imposed by states on the sale of luxury goods and services. This tax was subsumed under GST, and the taxation of goods and services became more uniform.

  • Entertainment Tax:

Entertainment Tax was levied by states on the sale of tickets for entertainment events. With the introduction of GST, the taxation of entertainment services was streamlined.

  • Taxes on Lotteries, Betting, and Gambling:

State taxes on lotteries, betting, and gambling were subsumed under GST. The uniform taxation of these activities was a significant step in creating a common market.

  • State Surcharges and Cesses:

Similar to central surcharges and cesses, states also imposed their own surcharges and cesses. These were subsumed under GST to simplify the tax structure.

  1. Other Taxes:

  • Octroi and Entry Tax:

Octroi and Entry Tax were local taxes imposed on the entry of goods into a local area. These were barriers to the free flow of goods, and their elimination under GST contributed to the ease of doing business.

  • Service Tax on Transportation of Goods and Passengers:

Service Tax on the transportation of goods and passengers was subsumed under GST, creating a unified tax structure for both goods and services.

  • Central and State Development Charges:

Various development charges imposed by both central and state governments were subsumed under GST, reducing the complexity of the tax system.

Impact of Subsuming Taxes under GST:

  • Simplified Tax Structure:

The subsumation of multiple taxes under GST resulted in a simplified and standardized tax structure. The previous complexity of dealing with different taxes at various stages of the supply chain was replaced by a unified tax.

  • Elimination of Cascading Effect:

GST allowed for Input Tax Credit (ITC), enabling businesses to claim credit for the taxes paid on their inputs. This eliminated the cascading effect of taxes, where taxes were applied on top of taxes, reducing the overall tax burden.

  • Creation of a Common Market:

By subsuming state taxes like VAT and Entry Tax, GST facilitated the creation of a common market across India. Goods and services could move freely across state borders without the hindrance of different state-level taxes.

  • Ease of Doing Business:

The elimination of entry barriers such as Octroi and Entry Tax, along with the simplification of tax compliance, contributed to the ease of doing business. Businesses could operate more efficiently without navigating through complex state-level tax structures.

  • Uniform Tax Rates:

GST aimed to bring uniformity in tax rates for goods and services across the country. This helped in reducing regional variations in taxation and contributed to the seamless flow of goods and services.

  • Transparency and Compliance:

The introduction of online processes for GST compliance enhanced transparency and reduced the scope for tax evasion. Businesses were required to file returns and pay taxes through digital platforms, making the process more efficient.

  • Promotion of Digital Transactions:

GST compliance, including filing returns and making tax payments, encouraged businesses to adopt digital transactions. This contributed to the broader government initiative of promoting a digital economy.

  • Rationalization of Tax Structure:

GST provided an opportunity to rationalize the tax structure by reevaluating tax rates and classifications. This allowed for a more strategic and balanced approach to taxation.